By Sylvia Longmire
Columnist, In Homeland Security
One of the most underutilized strategies in combating Mexican drug cartels is anti-money laundering (AML) action—namely, going after the money. Many countries where drug trafficking activity is prevalent have weak AML laws, and those that do have tougher laws have a tougher time enforcing them. This is why it came as a shock when banking titan HSBC was fined a record-breaking $1.9 billion in 2012 for helping Mexican drug cartels launder money and for breaching international sanctions by doing business with Iran.
HSBC Shares Increase
HSBC also agreed to a five-year deferred prosecution with the Department of Justice, under which the bank agreed to strengthen its anti-money laundering controls. However, that suspension recently ended, conveniently right before incoming chief executive John Flint takes control of the bank in February 2018. As a result, shares of HSBC jumped 1.7 percent, according to The Telegraph.
This doesn’t mean the end of HSBC’s legal woes. The bank still faces a $1 billion-plus fine in the coming months for its role in fraudulently selling toxic mortgage products in the U.S. ahead of the financial crisis, and is also separately being investigated by United Kingdom regulators for its alleged links to money laundering by South Africa’s powerful Gupta family. Ian Gordon, analyst at Investec, told The Telegraph, “We’ve seen these deferred prosecution agreements can be extended. It was largely expected but it’s very welcome.” Current chief executive Stuart Gulliver added, “HSBC is able to combat financial crime much more effectively today as the result of the significant reforms we have implemented over the last five years.”
Other Banks Named
HSBC isn’t the only major bank to be implicated in money laundering scandals associated with Mexican drug cartels. During a 22-month investigation by agents from the Drug Enforcement Administration, the Internal Revenue Service and others, it emerged that cocaine smugglers had bought a plane with money they had laundered through Wachovia Bank, now part of the giant Wells Fargo. According to The Guardian, criminal proceedings were brought against Wachovia but the case never went to court. In March 2010, Wachovia settled through the US district court in Miami, and its one-year “deferred prosecution” expired in 2011. It paid federal authorities $110 million in forfeiture for allowing transactions later proved to be connected to drug smuggling, and incurred a $50 million fine for failing to monitor cash used to ship 22 tons of cocaine.
U.S. authorities have historically avoided bringing criminal charges against banks or bank employees for money laundering for two reasons. First, they say it’s extremely difficult to identify specific employees within the banks who not only were aware of the activity (versus just ignoring the red flags), but also activity contributed to the money laundering effort. Second, they have expressed concerns over destabilizing the U.S. financial system by bringing down high-level employees of major banks and causing a repeat of the 2008 financial crisis.
The ‘Kingpin List’
Pricewaterhouse Coopers (PwC) states on its website that global money laundering transactions are estimated at 2 to 5 percent of global GDP, or roughly U.S. $1-2 trillion annually. Yet according to the United Nations Office on Drugs and Crime (UNODC), less than one percent of global illicit financial flows are currently seized by authorities. It also states that over the last few years, in the U.S. alone, nearly a dozen global financial institutions have been assessed fines in the hundreds of millions to billions of dollars for money laundering and/or sanctions violations. Despite these fines and the addition of numerous cartel-related Mexican businesses and individuals to the U.S. Office of Foreign Assets Control “kingpin list,” illicit funds continue to cross international borders and bank accounts.